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Arab Academy for Science, Technology & Maritime Transport Advanced Management Institute (AMI)

Comprehensive Exam Spring 2003 Wall-Mart Stores Case Study

Presented by Na laa Ahmed !allousa

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Wal-Mart Stores Ba !ground Sam &alton started his retail career in '()$ as a management trainee *ith "+,+-enney ,o+ in .es Moines, Io*a+ /e *as impressed *ith the -enney method of doing business and later modeled the &al0Mart chain on 1The -enney Idea1+ The -enney ,ompany found strength in calling employees 1associates1 rather than cler2s+ 3ollo*ing service in the 4+S Army during the Second &orld &ar, Sam &alton ac5uired a 6en 3ran2lin variety store franchise in Ne*port, Ar2ansas+ /e operated this store successfully *ith his brother, "ames 7+ 16ud1 &alton ('(#'0'((8), until losing the lease in '(8$+ &hen &al0Mart *as incorporated in '(9#, the firm *as operating a chain of '8 stores+ 6ud &alton become a Senior :ice -resident of the firm and concentrated on finding suitable store locations, ac5uiring real estate, and directing store construction+ The early retail stores o*ned by Sam &alton in Ne*port and 6entonville, Ar2ansas, and later in other small to*ns in ad oining southern states, *ere variety store operations+ They *ere relatively small operations of 9,$$$ s5uare feet, *ere located on 1main streets1 and displayed merchandise on plain *ooden tables and counters+ ;perated under the 6en 3ran2lin name and supplied by 6utler 6rothers of ,hicago and St+ 7ouis, they *ere characteri<ed a limited price line, lo* gross margins, high merchandi<e turnover, and concentration on return on investment+ The firm, operating under the &alton 8 & '$ name, *as the largest 6en 3ran2lin franchisee in the country in '(9#+ The variety stores *ere phased out by '(=9 to allo* the company to concentrate on the gro*th of &al0Mart discount department stores+ At the beginning of '((', the firm had ',8=% &all0Mart Stores in %8 states *ith e>pansion planned for ad acent states+ In #$$$, &al0Mart Stores operated mass merchandising retail stores under a variety of names and retail formats including? &al0Mart discount department stores, SAM@s &holesale ,lubs, *holesaleAretail membership *arehouses, and &al0Mart Super centers, large combination grocery and general merchandise stores in all 8$ states+ In the International .ivision, it operated stores in ,anada, Me>ico, Argentina, 6ra<il, Bermany, South !orea, 4nited !ingdom, and -uerto Cico, and stores through "oint ventures in ,hina+ It *as not only the nation@s largest discount department store chain, but it had also surpassed the retail division of Sears, Coebuc2, and ,o+ in sales volume as the largest retail firm in the 4nited States, and it *as also considered the largest retailer in the *orld+

"# Current Situation

Current Per$orman e

The company recorded an improvement in all of profitability and return on investment and it *itnessed a rapid increase in sales conse5uently in mar2et share+ Strategi Posture

"# Mission There is no agreed stated mission statement for the chain+ In some stores they raise logos such as 1everyday lo* prices1 and in other ones they raise 1provide the customer *ith a clean, pleasant, and friendly shopping e>perience1+ This can be 2ind of *ea2nesses for the firm+ The absence of agreed mission statement provide unclear picture for employees and customers to 2no* the firm current situation+ 2# %b&e tives The corporate and mar2eting strategies that emerged at &al0Mart *ere based upon a set of # main ob ectives that had guided the firm through its gro*th years 'n the $irst ob&e tive( the customer *as featured )customer *ould be provided *hat they *ant, *hen they *ant it, all at a value1+ 'n the se ond ob&e tive( the team spirit *as emphasi<ed )treating each other as *e *ould hope to be treated, ac2no*ledging our total dependency on our Associate0partners to sustain our success1+ The approach included? aggressive plans for ne* store openings, e>pansion to additional states, upgrading, relocation, refurbishing and remodeling of e>isting stores, and opening ne* distribution centers+ 3# Strategies The company follo*ed a variety of strategies as follo*? '+ Bro*th strategy *here the firm developed an aggressive e>pansion strategy+ Ne* stores *ere located primarily in communities of 8,$$$ to #8,$$$ in population+ The store si<e ranged from %$,$$$ to 9$,$$$ s5uare feet *ith )8,$$$ being the average+ The firm also e>panded by locating stores in contiguous geographic areas+ &hen its discount operations came to dominate a mar2et area, it moved to an ad oining area+ &hile other retailers built *arehouses to serve e>isting outlets, &al0Mart built the distribution center first and then spotted stores all around it+ And the ac5uisition of Mc7ane ,ompany, Inc+, in '(('+ #+ /ori<ontal gro*th, since the firm e>panded its business in 8$ states and invaded around ( foreign countries+ 3

%+ ,ooperative Strategy, *here the company launched several programs such as the 16uy American1 -rogram *as a &al0Mart retail programs initiated in '(D8, *hich resulted in cooperation *ith Bitano Broup, Inc+ for fashion+ )+ ,ost leadership strategy, the firm aimed to offer lo* price products and it raised a logo of 1everyday lo* prices1 8+ .ifferentiated strategy, the firm aimed to offer as many products as it can for various uses+ *# Poli ies There are no stated policies, but it can be implicitly understood that the company implement the Total Euality Management+ That the company applied the three common TEM principles? '+ ,ustomer 3ocus+ #+ ,ontinuous Improvement+ %+ Fmployees Fmpo*erment+

2# Corporate +overnan e
Board o$ ,ire tors F>hibit # in the paper mentioned '8 members of &al0Mart@s 6oard of .irectors+ -op Management

F>hibit # mentioned a list of a number of officers+

3# External Environment. %pportunities and -hreats /SW%-0

So ietal Environment '+ -olitical 0 7egal 3actors The rapid spread of programs that encouraging of the American products+ #+ Fconomic 3actors 6y '((D the country had return to prosperity, and *itnessed an improvement in the economic indicators+ 4nemployment *as lo*, total income *as relatively high, and interest rates *ere stable, ,ombined *ith a lo* inflation rate+ At the beginning of the year #$$$, the 4nited States had e>perienced ' of the longest period of economic e>pansion in its history+ %+ Sociocultural 3actors

The American society has *itnessed a big increase in the buying po*er and consumers *ere generally *illing to buy )+ Technological 3actors The 4nited States is considered to be number ' in the *orld in the technological development+ So the firm has a great opportunity to benefit from it+ -as! Environment /'ndustry0

Porter1s 2pproa h Michael -orter contends that a corporation is most concerned *ith the intensity of competition *ithin its industry+ The level of this intensity is determined by basic competitive forces+ GThe collective strength of these forces,H he contends, Gdetermines the ultimate profit potential in the industry, *here profit potential is measured in terms of long0run return on invested capital+H In carefully scanning its industry, the corporation must assess the importance to its success of each of the 9 forces? threat of ne* entrants, rivalry among e>isting firms, threat of substitute products or services, bargaining po*er of buyers, bargaining po*er of suppliers, and relative po*er of other sta2eholders+ 'otential Entrants Threat of New Entrance Industry Competitors &uyers (uppliers &argaining power of (uppliers Rivalry among e isting !irms &argaining power of &uyers

*ther (ta+eholders

Relative power of "nions# $overnments# %etc

Threat of su)stitute product or service (u)stitutes

-hreat o$ 3e4 Entrants The potential of ne* entrants in this industry is low for many reasons, yet the number of the e>isting retailers is considered to be lo* or medium, ho*ever most of the e>isting firms have *ell brand name+ In *hich ma2e it@s rather difficult to enter this era and it stipulates high capital re5uirements to be able to compete the e>isting firms+ The mar2et is relatively saturated+ And the firm is considered to be the mar2et leader+ 5ivalry among Existing 6irms The rivalry is considered to be medium in this industry for many reasons? Several formerly successful firms had declared ban2ruptcy, and as a result either li5uidated or reorgani<ed, *hich reduce the degree of the competition+ There is still a place for the remaining companies to offer promotions or differentiated services+ -hreat o$ Substitute Produ ts or Servi es The threat of substitute is considered to be low+ That in the *orst case the people can@t give up the essentials products+ Bargaining Po4er o$ Buyers The bargaining po*er of buyers is considered to be at its high level, that the retailing industry is highly affected by changing the economic indicators and increased competitive pressures+ Bargaining Po4er o$ Suppliers Iet the case didn@t mention anything about the suppliers, the bargaining po*er of suppliers in this industry based on the number of suppliers and oh the nature of the relationship bet*een them and the company+ 6ut I don@t thin2 there is a supplier refuses to deal *ith the mar2et leader+ So the bargaining po*er is considered to be low+ 5elative Po4er o$ %ther Sta!eholders The threat of other sta2eholders is low to medium, government regulations, and the increasing role of human rights organi<ations and health care associations+ External 6a tor 2nalysis Summary E62S
External 6a tors -hreats .ollar e>change rate BATT Weight $+' $+#8 5ating ) 8 Weighted S ore $+) '+#8 Comments ,oncerning the international mar2ets The ris2 of importing far east products

%pportunities Fconomic Indicators Fncouraging the domestic products Bovernment regulations

$+%8 $+#8 $+$8

) 8 #

'+) '+#8 $+'

6enefits from the economic prosperity 6enefits from lo* cost To adapt efficiently

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' Corporate Stru ture


2bove 2verage

*# 'nternal Environment. Strength and Wea!nesses /SW%-0

There is no information mentioned on the type of the corporate structure, but it implicitly appeared that the firm@s structure is flat or cross0function structure other than traditional hierarchical structure+ 6ut the firm provide more authority for its employees and it called them associates and empo*er them to participate along the process+ Corporate Culture

The company en oys a beautiful culture *ithin the company, *here the firm puts emphasis on human resources management+ And the company gives its employees deep authority and as *e mentioned above called them associates instead of cler2s+ And it uses us instead of me pronoun+ "# Corporate 5esour es Mar!eting

The firm adopted 1The -enney Idea1 *ho developed many techni5ues to achieve customer satisfaction+ The firm has launched its discount department store chain, the store designed to offer ' stop shopping in %9 departments that included family apparent, health and beauty aids, households needs, electronics, toys, fabric and crafts, automotive supplies, la*n and patio, e*elry, and shoes+ In addition at certain store locations, a pharmacy, automotive supply and service center, garden center, or snac2 bar *ere also operated (diversifications)+ The firm also operates its stores *ith 1everyday lo* prices1+ In addition it offers e>cellent services for the customers through *arm greetings and *ith its fantastic design and unified outlets design+ The firm offers a 1satisfaction guaranteed1 refund and e>change policy to attract customers to be confident of &al0Mart@s merchandise and 5uality+ In other *ords the firm has developed an e>cellent mar2eting mi>+ 2# 6inan e

The ob ective of the company is to increase its sales and conse5uently its profit+ As a result of aggressive e>pansion plan the firm follo*ed, the fi>ed assets has sharply increased from '((( to #$$$+

Iet the sales increase *ith an average of #$+DJ *ithin the last decade the financial ratios has recorded deterioration+ The current ratio declined from '+= in '(($ to reach '+8 in '((8 and fall sharply to reach $+( in #$$$, *hich means there is a big problem in the li5uidity+ Ceturn on assets recorded deterioration from '(($ to '((= to improve after that period+ 6ut it considered a bad ratio+ Also the C;F has *itnessed deterioration in the beginning of the decade and then it begun to improve+ The firm recorded a sharp increase in long term debt *hich led to increase the financial ris2+ 3inally as a result of the aggressive e>pansion the financial ratios *itnessed deterioration+ So I recommended follo*ing one of the stability strategy+ 3# 5esear h and ,evelopment

There is nothing mentioned regarding this department, yet it@s implicitly understood that the firm spend a lot on developing ne* techni5ues and services and it has strong team speciali<ed in developing the position of the firm in the mar2et+ *# %perations and 7ogisti s

The firm built the distribution center first and then spotted stores all around it, as opposed to the rest of retailers *ho built *arehouses to serve the e>isting outlets+ In &al0Mart, most stores *ere less than a 90 hours drive from ' of the company@s *arehouses+ The first ma or distribution center, %($,$$$ s5uare0foot facility opened in Searcy, Ar2ansas, outside 6entonville in '(=D+ 8# 9uman 5esour es

The firm puts more emphasi<e on human resource management, employees of &al0Mart became 1associates,1 a name borro*ed from Sam &alton@s early association *ith "+,+-enney ,o+ input *as encourage at meetings at the store and corporate level+ The firm hired employees locally, provided trainings programs, and through a 17etter to the -resident1 program, management encouraged employees to as2 5uestions, and made *ords li2e 1*e1, 1us1 and 1our1 a part of the corporate language+ A number of special a*ard programs recogni<e individual, department, and division achievement+ Stoc2 o*nership and profit0sharing programs *ere introduced as part of a 1partnership concept1+ 6riefly the company has applied the recent philosophies and techni5ues in managing its human resources+ .


'n$ormation Systems

Technological advancements such as scanner cash registers, handheld computers for ordering of merchandise, and computer lin2age of stores *ith the general office and distribution centers improved communications and merchandise replenishment+ Fach store *as encouraged to initiate programs that *ould ma2e it an integral part of the community in *hich it operates+ It seems that the company has strong information system+ External 6a tor 2nalysis Summary E62S
External 6a tors Wea!nesses No clear mission statement 7ac2 of international orientations 3inancial performance Strengths Strong distribution channels -roducts diversification Information system Strong brand name /uman resource management Weight $+' $+$8 $+'8 $+# $+# $+' $+' $+' 5ating ) # ) ) ) ) ) 8 Weighted S ore $+) $+' $+9 $+D $+D $+) $+) $+8 Comments 4rgent for employees and customers 7oss international opportunities May lead to great losses ,ompetitive advantage More attractive Strong communications 7oyalty Successful services

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' Situation 2nalysis

2bove 2verage

8# 2nalysis o$ Strategi 6a tors /SW%-0

3rom the F3AS and I3AS the company is considered *ell0positioned (pioneer) in the mar2et+ 6ut the company is suffering from some financial problems so the company has to deal *ith it+ The company has competitive advantage in all of distribution channels, products diversification, and strong /C management+ 5evie4 o$ Mission and %b&e tives

As mentioned before the company managed to achieve its stated ob ectives+

:# Strategi 2lternative and 5e ommended Strategy

Strategi 2lternative I thin2 the company managed its strategies effectively and efficiently+ It used a mi> of various strategies+ 6ut I thin2 the company has to follo* one of the stability or retrenchment strategies during the coming period+ That the gro*th or the e>panding strategies it follo*s has bleed its financial resources+

5e ommended Strategy

As above mentioned the company has to implement one of the stability or retrenchment strategies during the coming periods to stop bleeding its resources+

;# 'mplementation
As mentioned before the company has implemented several principles of total 5uality management philosophy, such as? '+ Management commitment? creating committed management to the process of continuous improvement, a dedication to empo*ering people to change, and to periodically raise the goals for improvement+ Adoption and communication of TQM? using tools li2e mission statement and slogans+ Employee empowerment? giving *or2ers the responsibility for improvements and the authority to ma2e changes to accomplish them+ Reward System? is the missing lin2 that motivates managers and employees to 1*al2 the tal21 and use TEM to the fullest and it@s divided into t*o groups, monetary and non0monetary re*ards+ Integrating training? includes different aspects of TEM elements, team s2ills and problem0solving techni5ues+ Process improvement? process of reducing *aste and cycle times in all areas through cross0departmental process analysis+ Quality at source? the philosophy of ma2ing each *or2er responsible for the 5uality of hisAher *or2+

#+ %+

)+ 8+ 9+

<# Evaluation and Control

I thin2 the company outperformed the mar2et during the last decade so it deserves to be called the mar2et leader or the largest retailer in the *orld+ 6ut I thin2 the company should ta2e care during the coming period that any recession in the American economy might lead to great losses that it increased its debt in a *ay that led to increase its financial ris2+ In addition, retailing industry is more sensitive to any change in the economic indicators, so the firm should follo* one of the stability strategies or retrench one of its activity+